French IT services firm Sopra to buy rival Steria for $1 bn

French IT services group Sopra Group SA is buying rival Groupe Steria SCA in a €730 million $1 billion) all-stock deal, in order to create the third-largest computer-services provider in the country.

The deal will create a European leader in digital services with revenue of €3.1 billion ($4.3 billion), over 35,000 employees and operations in 24 countries.

Under the terms of the agreed deal, Sopra is offering one share for four Steria shares, at an exchange value of €22, a 40 per cent premium to Sopra closing share price.

''The idea of combining forces has always looked like it made sense,'' said Pierre Pasquier, chairman and founder of Sopra, and Francois Enaud, CEO of Steria, in a joint statement. ''The accelerating pace of the digital revolution and new modes of consuming services are giving rise to a deep-seated change in our market.''

The new group would generate 25 per cent of its annual revenue from Solutions and Business ProcessServices, activities with the highest levels of growth and profitability both for Sopra and Steria.

The merger will see Sopra bringing the power of its organisation in France, the strength of its banking, human resources and real estate products and its effective application management model, while Steria is bringing its international reach -Europe and Asia, with a strong position in the UK, and its expertise in IT infrastructure management.

Steria has a market cap of €520 million, while Sopra is valued at €1.02 billion. The merged company aims to generate revenue over €4 billion and an operating margin gradually improving towards 10 per cent.

The companies expect to generate operational savings of €62 million a year starting in 2017.